Cheniere Energy Inc. reported a big boost from customers that elected to cancel liquefied natural gas (LNG) cargoes in the second quarter, earning $708 million in fixed fees from those opting out of lifting scheduled volumes.
In the first quarter, the Houston operator earned $53 million in revenue associated with canceled cargoes. The 2Q2020 revenue associated with the cancellations included $458 million that would have been recognized after June 30 had the cargoes been lifted as scheduled.
The cancellations helped push up margins that led Cheniere to a profit during what was a painful second quarter for the global gas trade. Excess supplies continued to hit lackluster demand dented by the Covid-19 pandemic, which weighed heavily on prices.
Chief Commercial Officer Anatol Feygin said the Dutch Title Transfer Facility, a key European gas benchmark, declined 60% year/year to $1.76/MMBtu in the second quarter, while the Japan Korea Marker, the dominant North Asian gas benchmark, slid 50% over the same time to $2.58.
Cheniere’s customers couldn’t turn a profit at those prices and elected to cancel cargoes, a theme that has dominated headlines at other Lower 48 export facilities for months now. The bulk of the company’s production is under long-term, take-or-pay contracts that generally allow customers to cancel cargoes up to 60 days before they are loaded.
The company did not quantify how many cargoes were canceled, but it exported 78 cargoes in the second quarter, compared with 104 at the same time last year. Meanwhile, loaded volumes also slipped to 278 TBtu in 2Q2020 from 360 TBtu in the year-ago period.
Global supplies have fallen for about four months in a row. Feygin said supply utilization was at 82% on average in the second quarter versus 93% in the first quarter.
“While it’s too early to call this a bullish market, we believe the recent slowdown in production is constructive in the near-term and reduces the risk of reaching maximum natural gas storage levels too early in the year at European storage facilities,” Feygin said during a call on Thursday to discuss the quarterly results.
Global supply growth turned negative in the second quarter, declining by 1 million tons (Mt), ending a six quarter run of supply additions, which averaged close to 10 Mt each quarter.
“While the environment in the spot LNG market remains relatively weak, I’m encouraged that dynamics in the LNG market are improving and unfolding as we have expected,” said CEO Jack Fusco. “As worldwide economies have begun to recover from the pandemic, we are beginning to see short-term gas prices stabilize and spreads are beginning to improve as we look into the winter months and beyond.”
More quarterly earnings coverage by NGI may be found here.
Management also still sees strong long-term fundamentals for domestic gas exports. Cheniere is forecasting a supply and demand gap of more than 100 Mt by 2030, driven mainly by Asia’s growing economies to feed new power generation, industrial demand, displace coal and replace declining domestic gas production.
With more than 150 million metric tons per year (mmty) of potential LNG capacity delayed or canceled, “we at Cheniere are well positioned and ready to address long-term supply shortages and capture demand opportunities for competitively priced LNG in the global market.”
Cheniere also moved up the completion date for its sixth train at Sabine Pass LNG in Louisiana, which would boost overall LNG production capacity to 30 mmty, to the second half of 2022 (2H2022) from a previous target of 1H2023. Train six is 64% complete. The third train at Corpus Christi LNG in South Texas, which would boost capacity to 15 mmty, is still expected to be completed in 1H2021.
The company reported second quarter net income of $197 million (78 cents/share), compared with a year-ago net loss of $114 million (minus 44 cents).
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